Chapter 3 - Acquiring and Organizing Management Information Flashcards
1
Q
Purpose and Use of Records
A
- Measure profit
- Provide data for business analysis
- Assist in obtaining loans
- Measure profitability of individual enterprise
- Analysis of new investments
- Prepare income tax returns
2
Q
Farm Business Activities - Production Activities
A
- Activities related to the production of crops and livestock
3
Q
Farm Business Activities - Investment Activities
A
- Relate to the purchase, depreciation, and sale of long-lived assets, such as land, equipment and livestock
4
Q
Farm Business Activities - Finance Activities
A
- Relate to borrowing money and paying the interest and principal on loans.
5
Q
Account Payable
A
- An expense that has been incurred but not yet paid.
6
Q
Account Receivable
A
- Revenue for a product that has been sold or a service provided but for which no payment that has yet been received.
7
Q
Accrued Expense
A
- An expense that accrues or accumulates daily but not yet been paid.
8
Q
Asset
A
- Any item of value, tangible or financial
9
Q
Credit
A
- An entry on the right-hand side of a double entry ledger. Used to record a decrease in the value of an asset or increase in a liability / owner’s equity.
10
Q
Debit
A
- An entry on the left-hand side of the double entry ledger. Used to record an increase in an asset or decrease in a liability / owner’s equity.
11
Q
Expense
A
- A cost or expenditure incurred in the production or revenue.
12
Q
Inventory
A
- The physical quantity and financial value of products produced for sale that have not yet been sold.
13
Q
Liability
A
- A debt or other financial obligation that must be paid in the future.
14
Q
Net Farm Income
A
- Revenue minus expenses.
15
Q
Owner equity
A
- The difference between business assets and business liabilities.
16
Q
Prepaid Expense
A
- A payment made for a product or service in an accounting period before the one in which it will be used.
17
Q
Profit
A
- revenue minus expenses minus opportunity cost.
18
Q
Revenue
A
- The value of products and services produced by a business during an accounting period
19
Q
Accounting Period
A
- A period of time used to summarize revenue and expenses and estimate profit. Either calendar year or fiscal year.
- Generally recommended that a a firm’s accounting period follow the production cycle of major enterprises.
20
Q
Chart of Accounts
A
- Lists and organizes all accounts used by the accounting system
- Includes the individual sources of income and expense that you are interested in tracking.
21
Q
Single vs. Double Entry
A
- Amount of entries made
- Double entry records
changes in values of assets and liabilities - In double-entry, there are equal and off-setting entries for every transaction.
- Double-entry requires more effort but is more accurate
22
Q
Whole Farm vs. Enterprise
A
- If the farm produces multiple products, it is helpful to know which ones contribute the most to profitability
- Dividing the business into individual enterprises or profit centers
provides valuable information
23
Q
Basic vs. Complete
A
- The most basic accounting system is one that is very simple and uses cash accounting.
- A complete system would be computerized with
capabilities for both cash and accrual accounting
24
Q
Cash Accounting Basics
A
- Revenue: recorded when and only when cash is received
- Expenses: recorded when they are paid
- Advantages: simple and easy-to-use.
- Disadvantages: recorded revenues and expenses may not be accurate
25
Q
Basics of Accrual Accounting
A
- Revenue: recorded when the item is produced.
- Expenses: “matched” to revenue; recorded when used to produce
- Advantage: accurate.
- Disadvantage: requires more time than cash system
26
Q
Primary Financial Statement and their Key Elements
A
Revenue - Net income - Assets - Production
Expenses - Investments - Liabilities - Investing
Profits - Withdrawals - Equity - Financing
